Paxos Fined $26.5M Over AML Failures Related to BUSD
Paxos has reached a settlement with the New York Department of Financial Services and agreed to pay a $26.5 million fine. The fine was issued due to alleged weaknesses in its anti-money laundering controls while managing Binance USD (BUSD), a stablecoin issued by Paxos.
This is yet another case where a crypto-related AML investigation ends without going to trial. As before, the regulator won't have to prove the allegations in court. Every similar case I’ve seen has ended in a settlement, with companies or individuals admitting guilt rather than contesting the accusations.
When I first looked into BUSD, what caught my attention was its accessibility: any holder could redeem it for US dollars directly through Paxos’ website. That’s not the case with most stablecoins.
Here’s how the leading ones work:
- With USDC, you can’t just walk up to Circle and ask for a redemption. Only registered institutional clients - those who pass a strict compliance check - have that right. Retail users don’t.
- With USDT, Tether makes it clear: they only have obligations to those who have a direct contract with them. If someone sends you USDT, that doesn’t mean you’ve gained any enforceable rights.
In practice, converting stablecoins to fiat usually means finding someone to buy them from you. With BUSD, the process was easier and more dependable. Yet the project was shut down by regulators without a trial.
Although BUSD issuance stopped in February 2023, Paxos continues to issue other stablecoins under similar terms: PYUSD and USDP. Both are available for exchange at rabbit.io.
